Glossary of Terms
A-Z dictionary of real estate investing and lending terminology.
A
Amortization - Spreading loan payments over time; each payment includes principal and interest.
Appraisal - Professional estimate of property value by licensed appraiser. Typically $400-800.
APR (Annual Percentage Rate) - Total yearly loan cost including rate plus fees. Use for comparing lenders.
ARV (After Repair Value) - Property value after renovations. Used by fix-and-flip lenders.
B
Balloon Payment - Large final payment at end of loan term.
Bridge Loan - Short-term financing (6-24 months) between transactions.
C
Cap Rate - NOI ÷ Purchase Price. Higher = higher potential return.
Cash Flow - Money left after expenses. Positive = profit; negative = out of pocket.
Cash-on-Cash Return - Annual cash flow ÷ total cash invested.
Cash-Out Refinance - Refinancing for more than owed, receiving difference in cash.
Clear to Close - Final approval, ready to schedule closing.
Closing Costs - Fees at closing: origination, appraisal, title, etc. Usually 2-4% of loan.
Conventional Loan - Mortgage conforming to Fannie Mae/Freddie Mac guidelines.
D
DSCR (Debt Service Coverage Ratio) - Rental income ÷ mortgage payment. 1.0 = break-even; 1.25 = positive cash flow.
DTI (Debt-to-Income) - Monthly debts ÷ gross income. Used in conventional lending, NOT in DSCR.
Down Payment - Initial payment by buyer. DSCR typically requires 20-25%.
E
Earnest Money - Good-faith deposit when making offer. Typically 1-3%.
Equity - Property Value - Loan Balance.
Escrow - Neutral third party holding funds/documents; also account for taxes/insurance.
F
Fannie Mae - Government-sponsored enterprise setting conventional loan guidelines.
Fix-and-Flip - Buy distressed, renovate, sell for profit.
H
Hard Money - Short-term, asset-based loan from private lenders. Higher rates, faster approval.
HOA - Homeowners Association. Dues included in PITIA calculations.
I
Interest-Only - Pay only interest for a period; improves cash flow and DSCR.
IRR - Internal Rate of Return. Annualized return accounting for timing of cash flows.
L
Lien - Legal claim against property for unpaid debt.
LLC - Limited Liability Company. Provides asset protection.
LTV (Loan-to-Value) - Loan amount ÷ property value. Lower = better rates.
Lock (Rate Lock) - Agreement guaranteeing specific rate for set period.
M
Market Rent - Rent property should command based on comparables.
Multi-Family - Property with multiple units. 2-4 = residential; 5+ = commercial.
N
NOI (Net Operating Income) - Gross income minus operating expenses (not mortgage).
Non-Recourse - Lender's only remedy is property, not your other assets. Rare for residential.
P
PITIA - Principal, Interest, Taxes, Insurance, Association dues. Complete monthly payment.
Points - Upfront fees to reduce rate. 1 point = 1% of loan ≈ 0.25% rate reduction.
Prepayment Penalty - Fee for paying off loan early. Common on DSCR (5-4-3-2-1 structure).
R
Refinance - Replacing existing loan with new one.
Rent Roll - Document listing units, tenants, rents for multi-unit properties.
Reserves - Cash/liquid assets after closing. Measured in months of PITIA.
S
Seasoning - Time you've owned property or held funds. Cash-out often requires 6-12 months.
SFR - Single-Family Residence.
STR - Short-Term Rental (Airbnb/VRBO).
T
Title Insurance - Protects against ownership claims/liens. Required by lenders.
U
Underwriting - Evaluating loan application against guidelines.
W
Warrantable Condo - Condo meeting Fannie Mae guidelines. Easier to finance.
Numbers
1% Rule - If monthly rent = 1% of price, likely good cash flow property.
1031 Exchange - Tax-deferred exchange of investment properties.
Most Important for DSCR:
- DSCR, PITIA, LTV, Prepayment Penalty, Reserves, Market Rent
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